New Mexico’s costly renewable portfolio standard

Recently, I wrote an article for the Liberty Foundation’s national publication which I have posted below the chart relating to the cost of New Mexico’s Renewable Portfolio Standard. James Taylor of the free market Heartland Institute also visited Albuquerque recently and spoke about the high cost of government energy regulations. The presentation was covered by Rob Nikolewski of Watchdog.

Electricity production has become a hotly contested political issue. This is largely the result of powerful environmental pressure groups turning man-made global warming, or more recently “climate change,” into hot-button political topics.

The controversy began to manifest itself at the state level in the late 1990s when Nevada and Texas first adopted “Renewable Policy Standards” (RPSs). These laws require electricity supply companies to produce a specified fraction of their electricity from sources deemed “renewable,” such as wind, solar, and biofuels.

During the early 2000s, the adoption of RPSs spread to a number of other states. One of these was New Mexico, which initially adopted such standards in 2004. Today, according to the Database of State Incentives for Renewables and Efficiency (DSIRE), 29 states have legally mandated standards and 9 states have voluntary goals.

Not all RPSs are created equal. In fact, they tend to evolve somewhat dramatically over time. New Mexico’s RPS took its current form in 2007 when the Legislature and Gov. Bill Richardson amended the original RPS requirement that utilities get 10 percent of their electricity needs by 2011 from renewables. Under the 2007 law, utilities must use renewables to obtain 15 percent of their electricity by 2015. That requirement will grow to 20 percent by 2020 absent further legislatively enacted changes.

Also in 2007, New Mexico’s Public Regulation Commission (PRC) issued an order and rules requiring that Investor Owned Utilities (IOUs) meet the 20 percent by 2020 target through a “fully diversified renewable energy portfolio.”

This regulation micromanages how utilities meet the legislature’s standard, requiring at least:
• 30 percent of the RPS requirement be met using wind energy,
• 20 percent from solar power,
• 5 percent from other renewable energy technologies, and
• 1.5 percent from “distributed generation” renewable energy technologies for years 2011 through 2014, rising to 3% in 2015.

Renewables mandates drive up electricity prices, which is why they are mandates. If the renewable technologies required were cost effective, utilities would adopt them on their own. The combination, in 2007, of the legislature increasing the overall RPS and the new regulation further micromanaging utilities sparked a rise in New Mexico electricity prices.

The rapid increase in New Mexico electricity prices was both predicted and is likely to accelerate in the years ahead. According to a 2011 report by the Rio Grande Foundation and the American Tradition Institute, “Over the period of 2011 to 2020 these laws (New Mexico’s RPS) will cost New Mexicans an additional $2.3 billion over conventional power.” That price shock was predicted to be most pronounced in 2020 as the RPS is reaches the 20 percent level. According to the report, “consumers will pay $619 million more for power in 2020.”

PNM’s request includes the cost of new pollution controls and elimination of two units (half of total capacity) at its coal-fueled San Juan Generating Station near Farmington. This has nonetheless generated a great deal of controversy among environmental groups who want the facility completely and immediately shut down.

Camila Feibelman, executive director of the Sierra Club’s Rio Grande Chapter, told the PRC in recent testimony, “We agree with shutting down two units at the plant, but we’re concerned that PNM’s plan will still lock us into continued use of coal for another 30 years.”

Needless to say, the political battles over electricity at the state level are heated and they are just getting started. No matter what happens with the Obama Administration’s proposed federal “Clean Air” regulations, New Mexico and other states that have aggressive RPSs in place will continue to see electricity prices rise as the “low-hanging fruit” of relatively cheap and easy renewable generation is achieved and more costly, less economical renewable projects are embarked upon in order to fulfill those standards.

In other words, for rate payers in New Mexico and elsewhere, the pain from the state’s RPS will only get worse in the years ahead.